“Issuing those shares at an undervalue was unfair!”
my dad is a farty bum
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DCo, whose chief asset was a domain name related to real estate, issued shares in various tranches.In May 2018 the Ps subscribed at a value of $0.6667: [3]
Some Ds were issued shares in various tranches at a lower value – from $0.001 to $0.02: [4]
The Ps sought orders including that the lower priced shares were invalidly issued: [8]
(The Ps commenced parallel proceedings about related regarding DCo and its (deceased) controlling mind, C: [10])
In May 2018, C caused DCo to make the share offer to the Ps on the basis $20m was needed to realise the value of DCo’s use of the domain name: [33]
The offer included various warnings about the risk of investing, and was open only to sophisticated investors: [34] – [37], [41]
The docs suggested the domain name and associated “intangible assets” had a value exceeding $70m: [38]
The Ps responded, many investing hundreds of thousands of dollars thereby raising $23m at a $0.6667 per share valuation: [43]
In July 2018, C caused their related entity to transfer ownership of the domain name to DCo in exchange for 80m shares for a value of $80K i.e. $0.001 per share: [45] – [48]
Later in 2018 and through to June 2019, further shares were issued at the ~$0.001 – $0.02 value: [50] – [56]
11 million shares were issued from late 2020 into 2021 at a price of $0.001 pursuant to options: [69]
In 2022, following a whistleblower complaint, DCo circulated its alleged share register and invited corrections. No member alleged inaccuracy: [73] – [82]
Ps brought their claim that issuing shares for inadequate consideration was oppressive: [109] – [112]
The Ps’ concerns were the shares being transferred for a sum other than “market price” and a “self interested” transaction caused by C: [138], [139]
As at April 2018, the transfer was not an undervalue; the “market” for shares in a $1 company was not significant: [142] – [144]
Further, the warnings made in the original offer were such that the Ps’ acceptance of it was not oppressive: [169] – [171]
The Ps’ contention that DCo should retain the value of domain name transferred to it without the shares issued to the former owner as consideration would be an unfair result: [179]
In relation to lower priced shares issued to consultants and directors, the Court found a reasonable director of a start up may consider issuing shares to people who have made a valuable contribution (thereby securing their services) as a valuable incentive, and so not oppressive: [226], [227], [236]
The Court found the issuing of 11.1m option shares was oppressive to the $0.6667 shareholders [261] but, in the context of other transactions and restructuring moves, had no continuing effect requiring s 233 relief: [281] – [283]
The proceedings were dismissed: [287]
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